Wall Street Journal to be made Free; Shrewd, or Optimistic?

The Wall Street Journal (WSJ) is one of the most well respected publications in the US. With over 2 million print subscribers, and 931,000 paid internet subscribers, its readership is very large for a niche, premium quality newspaper. Started by the infamous Charles Dow, the company was recently bought by NewsCorp, a publicly listed company, and an owner of such media assets as The Sun, News of the World, The Times, DirecTV, and more recently, MySpace, the worlds largest social website. Even someone oblivious to the mass media would still recongise the great variety in the brands owned by NewsCorp. Rupert Murdoch, Chairman and CEO of NewsCorp, makes no secret on where he believes his media competitive advantage comes from; cross ownership of a variety of assets that touch nearly every niche in the media marketplace.

Not one to shy away from taking cutting edge ideas as a business refocus (see: MySpace), Murdoch has decided to make the WSJ, formerly a subscription only internet service, into a completely free online news site. Moneyquote:

“Rupert Murdoch, the chairman of the News Corporation, said today that he intended to make access to The Wall Street Journal’s Web site free, trading subscription fees for anticipated ad revenue.

“We are studying it and we expect to make that free, and instead of having one million, having at least 10 million-15 million in every corner of the earth,” Mr. Murdoch said, referring to The Journal’s online readership.

Some may be surprised by this move, considering at $99 a year for an online subscription, and 931,000 subscribers, by my crude calculations would mean WSJ Online takes in over $92,169,000 of annual revenue; which is a big chunk of revenue, even for a giant like NewsCorp. Subscription-only doesn’t mean there’s no advertising revenue, either. Readers willing to fork out the extra cash to read the premium articles the WSJ offers are big cash cows as far as advertisers are concerned. 61% of upper management subscribe to the WSJ, either online or in print. Therefore, it’s not a stretch to say that the readership attracted by the WSJ would have a much greater purchasing power than many mainstream newspapers, such as ‘USA Today’ and ‘The Australian’. Companies like BMW and Rolex know all to well about which demographic they’d like to target, and aren’t shy in paying a premium for that opportunity.

Considering the explosion of growth in internet advertising over the last 3 years (or should I say, the Google era), with new acceptance from consumers, coupled with new techniques and tailored targeting from advertisers, internet advertising promises to be a huge growth engine for a medium which is very scared of dying out. This suggests Murdoch’s idea of a revenue shift from subscription to online advertising makes sense; the former has much higher growth prospects then the later, and betting on growth makes much more business sense over the long run. That doesn’t mean its a shrewd move, however. First of all, internet advertising and subscriptions are not mutually exclusive. WSJ can still advertise to its exclusive (thus sought after) readership. Would letting everyone else peak in on WSJ content really make up for the subscription shortfall? The Big Picture nails it:

The simple answer is demographics. I have not personally seen the data, but according to these “Ad men,” the CNN viewer has much better education and income numbers amongst; Fox news badly trails CNN in this department. The issue of disposable incomes of viewers surely concersn advertisers. One said to me “We can sell basic necessities on Fox and cheap trinkets; We can sell more upscale brands on CNN, and we can sell a lot more upscale goods on CNBC.”

Murdoch’s weakness is brand. His tabloids, his fox network holdings, all of them post strong viewer and readerships. But this alone doesn’t ensure money; that comes from advertisers. Advertisers who only pay if you can Shepard the cattle from someone else’s trough into their own. Respectability of media goes a long way towards doing that. Murdoch knows this; thats why he bought MySpace 2 years ago. MySpace appealed to a market segment which was becoming increasingly difficult to tap; for the traditional mediums, that is. MySpace offered a new type of medium, one which broke free of the norm and offered advertisers a direct portal too a lucrative spending demographic. WSJ did the same thing, it brought respectability to NewsCorp that you can’t manufacture with a Fox News spin off. That’s why he bought WSJ. And thats why I’m puzzled he made this move. Murdoch is no doubt one of the shrewdest business men of the modern era. He’s always been on top of his game. He’s persistent with his ideas, and has the fruits to bear from his powerful philosophy.

To look at it another way, perhaps he’s staying ahead of the game. As other industries know all to well, resisting change leads to decay, which always leads to death. Don’t mistaken death for a clean death either; look at the music industry. The wounded beast wails the loudest, as they say. Moneyquote:

The boss of Warner Music has made a rare public confession that the music industry has to take some of the blame for the rise of p2p file sharing.

Speaking at the GSMA Mobile Asia Congress in Macau, Edgar Bronfman told mobile operators that they must not make the same mistake that the music industry made.

“We used to fool ourselves,’ he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and as a result of course, consumers won.”

Either way, there’s at least one safe bet; undergraduate business text books 10 years from now will consist of a NewsCorp case study. Hindsight will always make the correct business decision seem like the obvious move. Current textbooks suggest Mr Murdoch is blessed with foresight. If you’re looking to make the safe bet, I’d back the proven winner.